Earnings Week Begins

The first heavy week of earnings begins.....Don't look for a smooth ride on Tuesday, Wednesday, and Thursday.....it may happen, but it's more likely that volatility will increase. The market is about to get very newsy. This is normal for Earnings Season, so just let it ride.

I will probably continue to stick with short swings until at least Friday. There may be some nice earnings pops to play this week and next, so as always there is the potential for good opportunities.

Remember that the Bulls had a mini paradigm shift on Friday and one rose colored lens came off. I'm not expecting a bullish push on a "glass is 10% full" Earnings Season any more. I think the glass is going to need to be 30% - 50% full now in order for the Bulls to feel like they have enough ammo to trend the market for 1-2 months and get that Descent Block on the SPX monthly charts to follow through. How ever it turns out, I'll take it one day at a time for now.

Don't get too caught up in every little report. There will be a lot of elevator analysis, newsletters, posturing, reporting, and gyrating the next two weeks. Most of what you see will be organizations fighting for your eyeballs by "marketing" you information. When the market gets more intense, you need to get more intelligent, and that means simplifying. Look at the Big Picture that emerges from all the news chaos (that's the Stage 2 Consensus I keep talking about). Use your charts to see through the hysteria. And look for good opportunities one day at a time and one opportunity at a time.

Our first bit of interesting news is that Oil is all the way back down to $39 a barrel. We are experiencing some wild fluctuations in Oil, just as I warned. Energy will be a global issue until the world figures out that we are in a macro demand shock. Pre-market futures are down a little since Energy has been a leading sector both up and down recently (and long term), which is generally not what you want from a healthy market.

Here is a chart of the SPX:
(click on image to enlarge)

You can see that support is at 875 - 878 and then again at 850 - 855. The downswing is four days old with a little goof candle on Thursday. It looks similar to the downswing two swings ago. It has a decent probability of finishing out today and then traders may sit and wait for the first wave of heavy earnings after the close today and before the open tomorrow. The timing makes sense, so we'll see if it plays out that way.

This week is going to be what it's going to be. There is more unknown going into this Earnings Season than in many past seasons. That's exactly why I think the Bulls were wise to not get ahead of themselves and speculate like they always do on earnings. Like I said above, take it one day at a time and one opportunity at a time for the next week.

Bulls Give Way to Common Sense

Pre-market futures are up slightly on the Jobs Report coming out about in-line with expectations. Non-farm payrolls showed -524k, which was close enough. Those of you following me on VC last night heard me state that it would probably take -650k to -700k to get the SPX to drop down into the 880 area and continue the downswing. I also stated that an in-line number would probably float the market a little today, possibly as far as 920. I don't think the report is strong enough to drive a move to 925 or above, but it is enough to get the Bulls to hang around and hope for the big earnings reports next week. As long as the earnings reports next week, in general, are less than horrific, then the Bulls will take another desperate leg up in hopes that "catastrophic" and "deep recession" have already been priced into the market.

Here is a chart of the SPX:
(click on image to enlarge)

You can see that the 918 - 920 area is the first short term resistance. The next short term resistance is the 927 - 930 area. As I stated above, the Bulls have enough ammo now to try for the first area, but maybe not enough to get to the second. I've been stating for several days that puts are going to be quick plays unless we get an end-of-the world scenario from the Jobs Report and the earnings reports. We are in the first couple of days of the Second Stage Consensus with the transition out of Earnings Warning Season into the Jobs Report and then into Earnings Season. I don't expect a drop through yesterday's lows, but if the Bulls did decide to sell, then the first area to look for today would be 890 (89 on the SPY), and then 880. It would probably take a nasty news bogey to get the market down in those areas ahead of the epicenter of Earnings Season.

7:45 am MT: Intra-day Update: The Rounding Bottom / Rectangle on the SPY 15m charts tried to confirm to the upside this morning on the little gap at the open but failed. Price action collapsed back into the base, which creates the risk of a drop through 89.75

7:51 am MT: The Bears pushed the market through 89.75 and it now looks headed towards the 89.00 area.

The price action this morning is a lot faster and sharper than I would have expected. The Bulls really took a step back at the open, which is surprising to me. If they don't reacquire the 90 - 91 range again on SPY fairly soon then the market is at risk for continuing the downswing.

7:54 am MT: It looks like the downswing has been continued.

8:10 am MT: The Bulls may have come to their senses just a little and decided not to get too exuberant about the "end of the worst of the recession" scenario. I thought that buying the market up sharply ahead of earnings was a bit premature on the part of the Bulls. I actually think this is the logical thing for the market to do, which is to at least stay range-bound on the SPY between 85 - 92 until Earnings Season gives the market a reason to buy or sell. It's one thing to speculate ahead of everyone else on the potential changes in economic trends, it's another thing to fixate on the 3% of the glass that's actually full.

Here is a 30m chart of the SPY:
(click on image to enlarge)

The big bearish long body coming out of the gate should hold the mid-point if the market is going to stay under pressure and continue the downswing today into the 88 area. That means that 90.00 to 90.25 is resistance. If the SPY goes above that area then this was a one-candle wonder and the market goes back into intra-day consolidation. The next target down is 88, with one more wiggle at 89 possible. This has been a pretty whippy morning so far, so don't get too heavy with your trading today.....

10:10 am MT: Intra-day Update: The market is consolidating a bit off the first big drop out of the gate. So far, the 90 - 90.25 area is holding on the SPY. It may be that the market becomes ambivalent for the rest of the day, but if the early momentum to the downside has a chance to carry through on a second leg into the close then the market should roll over again within the next 60m - 90m. If we don't see the rollover in that time then we could be in for wispy, consolidating, and floating price action for the rest of the day.

11:10 am MT: Intra-day Update: The market is getting a little long in the tooth with the intra-day consolidation, but the price action is still within the realm of my time frame. Right now, there is still a better than 50% chance that we get another leg down intra-day.

Market Rollover Consolidates Mid-Day

Pre-market futures are down on a negative earnings warning from WMT, which bodes poorly for retail since WMT is the best positioned retail company during recessions and drawdowns in consumer spending. After this news, I speculate that Retail will probably not be a boost to the Bulls during this upcoming earnings season. Yesterday INTC set the tone for a negative outlook in Tech. Remember, I commented in VC last week that Retail and Semiconductors within Tech were the next best leadership for the upswing after Energy, Coal, and Commodity stocks. So traders are mulling over the very real possibility that Retail and Tech may not be bullish leaders during earnings season, which means the Bulls are getting just a little nervous despite their desperately hopeful, glass is 10% full, any lack of bad news is good news outlook.....

Weekly Jobless Claims came in better than expected, but the worse than expected ADP report yesterday is probably going to keep traders nervous about the big Jobs Report tomorrow. I've warned before about the unreliable connection between the ADP Employment Report and the big Jobs Report, but evidently the ADP folks have recently revamped their survey methodology to drastically reduce the variance between their report and the government report. In the first 11 months of 2008 the ADP numbers missed the government numbers by an average of 154k. But in December they got the variance all the way down to 20k. I don't know if the methodology will hold or not, but that would mean the ADP report is predicting a loss of close to 700k jobs in the government report tomorrow, which is much larger than the expected loss of 500k jobs.

The bottom line is that earnings and employment trends continue to be the worry of the market. Traders will be focusing on the layoff announcements during the earnings reports more than they have in a long time. The market is probably going to hear all kinds of news about mergers, acquisitions, layoffs, and uncertainty in forward guidance this earnings season.

Speaking of acquisitions, SWIM is being acquired by TD Ameritrade.....

Back to the market.....many of you saw me play puts on SPY, DIA, and XLE yesterday. I locked in partial gains of 12% - 17% and kept part of the positions for a possible further move today, which it looks like we are going to get. I also commented in VC about multiple other opportunities for puts. If the market has a full move today, then we could see a drop on SPY (as a market proxy) down to 88, but I think 89 is a more conservative initial target. Either way, the market (SPY) has a good probability of cracking down through 90.

Here is a chart of the SPY:
(click on image to enlarge)

The formal stop on puts would be a move above 92.50, but I really don't want to see the market get above 90.75. My first target is the 88 - 89 area, and if the market gets through 88, then the next target is the 85.50 - 86 area.

Remember, their is a very real desperation on the part of Fund Managers to have a good start to 2009. So they will look at any absence of bad news as good news, and they will look at any bad news that isn't dramatically beyond catastrophic as good news. So it's very important to watch the charts and go with the consensus, regardless of the logic behind the move.

7:45 am MT: Intra-day Update: The first little intra-day battle is going on right at 90, just as I speculated from yesterday during VC. You can see that this morning is a continuation gap on the 15m charts of the SPY (yesterday was the breakaway gap on the 15m charts). So the gap needs to hold in order for the morning to get some more selling. If the gap closes, then we could get some consolidation for half the day before the next move. I want to see a drop below 90 right now for a nice early continuation of the rollover. I still speculate that we will have a move down to 89 today, but as always, we shall see.....

7:55 am MT: Intra-day Update: SPY just punched through 90, so off we go.....

12:45 pm MT: Intra-day Update: The market has stayed fairly range-bound today. I spoke about the concept that traders would only take this rollover so far and then they would just sit and hang out and hope for a less than end-of-the-world Jobs Report. Yesterday I thought it was going to be 90 on SPY, this morning I thought is was going to be 89, so I guess it's only fitting that it ended up being in the middle at 89.67. The market is in a Rectangle on the 15m charts, but the desperately bullish Bulls are trying to make a little bit of a push right now. I keep emphasizing the importance of realizing that the Bulls are in mortal anguish to keep the market afloat in the first part of 2009.

Here is an updated 15m chart of SPY:
(click on image to enlarge)

If the Rectangle breaks to the downside, then we might see the 89 target I was speculating on this morning. If the Rectangle breaks to the upside then the Bulls will throw a mini-party and then start hoping (desperately) for a less than catastrophic Employment Report tomorrow. This will be entertaining to watch if nothing else.....

12:57 pm MT: The Bulls keep trying to get through resistance on the 15m Rectangle I just posted, but they can't close the deal. They only have 3 more minutes. This is always hilarious for me to watch because it's all just a goofy emotional game on the part of so many traders. Now they're down to 2 minutes and they still haven't done it.....I won't be surprised if some Fundy comes along and pushes the market through the intra-day resistance. Alright, now we're down to 1 minute.....

1:00 pm MT: Here we go now, I thought some Fundy would come along and try to push it through on the next 15m candle, although I think the push will probably be weak and fail. I'm not a buyer of anything right now, there's too much risk ahead of the Jobs Report, but like I said, it's always entertaining for me to watch the FuFu's get all frantic at some little price point intra-day. I've had enough of this for now, I'll watch and see if the Bears manage to take us back down to the low end of the range into the close.....

Earnings Season Starts Stage 2

Earnings Season is getting early attention with the AA report coming in worse than expected. Usually traders get more active with earnings next Tuesday, Wednesday, and Thursday. But timing, a swing rally, and hand-wringing have them starting to fixate on Stage 2 a couple of days early. A few more companies will report earnings this week, and then it gets heavy next week.

Tomorrow we will also get Weekly Jobless Claims and Friday is the big Jobs Report. So earnings and employment will drive the next few days, and probably the next few weeks if more companies announce layoffs like AA.

I kept warning that a rally being led by Energy, Coal, and Commodities was a little suspect. It looks like the hidden news that finally came out in that area was the Russia - Ukraine gas crisis. I don't expect oil to rally any more off that news in the short term. The upswing we just had was good for some nice call trades, so it played its part, but it's probably over now.

Pre-market futures are down sharply, and the gap down at the open will be enough to confirm a rollover. The SPY is set to open around 92 or lower, which is well below the 92.50 pivot area. If the market wiggles up a little at the open, I still expect it to fade again. The probability is in the direction of a rollover today. Aren't you glad you sold into the hysteria at the open yesterday? It's possible that the Bulls can overcome the morning's selling, but not probable. However, if they do, it will be a powerful signal that the market is willing to buy in the face of all distractions. A move back above 93.50 would be an indication that the Bears are out of business.

Here is a chart of the SPY:
(click on image to enlarge)

The gap this morning could take the market right to the mid-point of the long candle from Friday (thanks for the correction Troy). That would be a natural spot for some wiggle. I speculate that the swing will consolidate down into the 90 area over the next 1-2 days and the next news pivot will be the Employment Report on Friday. We are starting to enter Stage 2 and this consensus will take the longest to develop out of the three stages I anticipated this month. The Stage 2 Consensus, unlike 1 and 3, will not just set a short term tone, but probably set the intermediate term tone for 1-2 months as well.

8:00 am MT: Intra-day Update: The market did hit the mid-point of Friday's long real body (pretty much exactly at the mid) and wiggled up. I picked up some paper puts on the wiggle back on the 5m charts. Now the market is rolling over on the 5's. The key from here is whether or not the market makes a lower low on the 5m charts, that would set the tone for a "selling" morning and increase the likelihood of a rollover on the daily chart upswing.

Bulls Dream While Bears Awake from a Nap

Whether it's real or manipulation it doesn't matter for swing traders, the current short term move in the market is still bullish. Pre-market futures are up on hope for the future and a perceived oversold condition in the market, especially on the long-term chart. Factory Orders comes out 30m after the open, which may act as a catalyst today simply because of timing and not because of the importance of the report.

7:35 am MT: The market gapped up at the open, with the Naz leading the way by gapping slightly higher than the high of yesterday. The Dow and SPX are trying to clear yesterday's highs as well. I'm not a buyer on this gap, it smells awfully suspicious. I will at least wait and see how traders react to a gap test. It may be that the break to new highs out of the gate will sustain, so if you trade calls, just watch that the market doesn't toss an Evening Star on the 10m charts at the breakout like it did yesterday. I want to see the breakout or the gap hold before I get too carried away on a late stage move in the current swing.

I just don't know why analysts are hyperventilating over a market that is being led by Energy and Commodity stocks. The big move up in this current swing has seen oil jump from $35 a barrel to over $50 a barrel. That's over a 43% move up in seven trading days.....hurray......

I have played calls in the current upswing, so it's playable, but I'm not exactly running through the streets with tears of joy in my eyes sobbing for the great bullish victory of 2009. We'll see how this goes, but for now the current swing is still trying to make some noise.

7:40 am MT: I speculate that the short term swing is starting to consolidate, and that the consolidation started with the Doji yesterday. However, that doesn't mean that I might not see a clear indication of a continuation and another leg up. I don't think it will happen, but just in case it does I will watch how traders treat the breakouts and gaps this morning on the Naz and SPX.

Traders are not quite as convinced on the SPY, which is still struggling to reach yesterday's high. I will post a chart of the SPY and Naz in an hour or so, after Factory Orders hit, and after I see if the breakout/gap holds.

The SPX is still looking strong, so if we get an orderly consolidation off the 5m charts in the next litle while, then I will possibly look at some calls. If I had calls right now I would be selling some right into this early excitement in the market.

9:00 am MT: Intra-day Update: The market is at a key tipping point right now. The gap and breakout are being tested. The confirmed bounce on the 15m charts is getting a severe test. The Naz continues to be the strongest index, as I warned several days ago. The SPX is lagging a bit, but a drop in the SPX will drag everything else down.

The price action is just a little loose and wild. Those of you that sold into the early day hysteria when I said that I was a seller and not a buyer, good for you. If the market holds and bounces then there may be another buying opportunity, but I'm still watching this price action closely and cautiously.

9:05 am MT: Intra-day Update: Yeah.....I thought so.....the SPX just gave up the bounce on the 15m charts. We're headed to the other side of the gap and maybe more. The market has to prove itself pretty strongly to me now before I take anything other than a very short swing intra-day. If I decide to play for a continuation of the multi-day swing with anything longer than a 15m chart then I need to see a confirmed bounce on the SPX on the 30m charts. We shall see.....I'm still leaning towards a consolidation day.

Here is an updated daily chart of the SPX:
(click on image to enlarge)

If 920 holds and we get some kind of Rising Three Methods variant, then great, I'll look for calls. Other than that, I speculate that the price action for the next several days, as we head into earnings season, could be more of a consolidation.

The First Test of the New Year

Here we go.....Big Money has been content to sit back and let Fast Money float the market the past three trading days while they finished up their vacations. Now comes the first real test of 2009.....are Big Money Managers Bulls, or are they going to keep crunching the market sideways?

The Dollar may be done consolidating intermediate term and ready to move again. That means that Energy and Commodity stocks might stall a bit today. There is no significant news catalyst this morning that has pre-market futures down. We are still in the Stage 1 consensus I wrote about last week, which is the Earnings Warning season. The main difference between last week and this week is that we are more likely to get some volume in the markets, which means that Big Traders are now going to lay down their bets for Stage 1. Typical to Stage 1, the reasoning for the Bears today is a "concern" that corporate profits will stay in a slump. When we get the actual earnings in the middle of the month the market will transition into the Stage 2 consensus.

Long-term the markets are in a variation of a Descent Block pattern on the Monthly charts. So there are big battles happening on every time frame. Intermediate term the market is still neutral, and short term the market is still pushing through an upswing, which will see it's first real test this morning.

Here is a chart of the SPY:
(click on image to enlarge)

You can see that the futures are showing a gap down of about .70 cents or so. The key to the day will be whether the Bulls fight through the gap or not. The Bulls have been trying to close the gap pre-market (probably on the news that Steve Jobs is healthy again.....), so this will be an interesting morning. The Naz broke out on light volume last Friday, and the SPX and Dow had minor breakouts on light volume. If the Bulls can't overcome the gap this morning, then the current upswing may be over. Expect volume to increase today.

Happy New Year

The first trading day of 2009 is following through, early in the day, with the upswing that ended the last two trading days of 2008. The light volume moves over the Holidays will gradually make way for heavier volume moves in January. Not everyone is back from their vacations, but volume will probably pick up a bit today, and then a lot more on Monday.

The last two days of 2008 saw a support bounce and a technical move towards resistance. The market was much easier to manipulate, last week, by fewer large financial institutions. That won't be the case going forward, so watch for volatility to increase early this month. I think we will see three "consensus" moves. The first will be during the first week of January, which will be part of earnings warning season and also anticipated fund inflows (or lack of inflows.....). The second will be in the middle of the month, after the first week of earnings is in the books and traders react to the catastrophic or less than catastrophic reports. The third will be at the end of the month, carrying over into February, as traders start to react to anticipated moves by the new Presidency.

Here is a chart of the SPX showing the technical move:
(click on image to enlarge)

Perhaps traders will finish out the technical move to resistance. Big Money will be happy to sit back and let this ride as long as they dare while Fast Money continues the momentum move from last week's light volume trading. Either the end of last week was crafty manipulation, or it was real.....we shall soon find out.....

12:25 pm MT: Intra-day update: Traders have broken the Naz through resistance. The SPX and Dow are pushing to follow along with the Naz and stage their own breakouts. This is not that unusual for the first trading day of January, or the early part of January. I don't think the market has come to a big volume consensus, but the current swing looks like it's still in play for today and maybe Monday and Tuesday.

Here is a chart of the Naz showing the breakout:
(click on image to enlarge)

Here is a chart of the SPX following along with a breakout:
(click on image to enlarge)

The charts are still bullish for now.....